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TMI Blog2019 (9) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... . It also includes the service to be provided during the warranty period. In the instant case the Applicant supplies the goods such as Fire Control Systems, Radar Systems etc., and also provides the services of the installation, commissioning, Training etc.. The equipments/ systems supplied by the applicant are custom made for warships and hence the applicant alone is qualified to install and commission them and also to train the recipients. Therefore the two supplies that of supply of goods and supply of related services, are taxable as well as naturally bundled and hence qualify as a Composite Supply. The principal supply is undoubtedly that of goods i.e. the systems. Since the principal supply is supply of goods i.e. fire control systems, the entire composite supply need to be treated as the supply of goods fire control systems. Whether the systems and assemblies (goods), supplied by the applicant qualify to be classified as parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 or not? - HELD THAT:- Chapter 89 does not have a provision for parts or accessories and hence any, system / sub-system or article or product by whatever name it is called, that is fitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplies effected or to be effected by them for construction of, or use in, vessels, warships and sub marines meant for deployment in the Indian Navy. b. The applicant states that the present application is maintainable under section 97 of the KGST Act as the application is in respect of the applicability of a notification issued under the provisions of the GST Act. c. The applicant states that they are having manufacturing units at various places across India and are mainly engaged in the manufacture and supply of various defence related equipment/ machinery/ systems. The said goods are supplied to all the three forces guarding the frontiers of the country. d. The applicant states that the subject matter of the present application relates to supplies effected against Purchase Orders received from various Ship Building Industries, namely, Mazagaon Dock Limited, Garden Reach Shipbuilders and Engineers, Hindustan Shipyard Limited, Larsen and Toubro etc., and directly to Indian Navy. e. The Purchase orders or contracts are usually placed by the customers for supply of systems such as Color Tactical Display systems, Missile System, Radar systems (for surveillance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of the systems along with services inter alia of development and engineering, training. The applicant is also in charge of installation and commissioning of such systems by deputing their service engineers as per the requirements of the Buyer Party. h. The applicant submits that the various systems are to be integrally connected with each other for effective functioning of warships, Vessels and Submarines. For example, the Fire Control System and the Missile System are to stay interlinked with the radar system and the CTD system is essential for monitoring and handling all such systems. i. In the backdrop of the above factual and technically involved in supplies of various items required for use in a Warship, Vessels, and submarines for the purpose of discharging GST liability, the applicant is required to determine the classification of the subject supplies and the rate of tax applicable for the same. j. The applicant submits that in terms of section 2(30) of the CGST Act composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure or sports; rowing boats and canoes are kept out of the above list apparently considering the same as a luxury item. l. The applicant submits that he is of the understanding that the subject supplies are covered by Sl.No.252 of Schedule I of Notification 1/2017- Central Tax (Rate) for the following reasons:- i. Part of ships do not have separate heading in the Tariff: a. Explanation (iii) to Notification No. 1/2017-IGST provides that the Tariff item , heading and Chapter shall mean respectively a tariff item, subheading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975. b. Further, Explanation (iv) provides that the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this Notification. c. Section WII of the First Schedule to the Customs Tariff Act, 1975 relates to Vehicles, Aircraft, Vessels and Associated Transport Equipment including four chapters namely 86 (Railways), 87 (Vehicles other than Railways), 88 (Aircra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection XVI or Chapter 90 etc. j. The applicant states that the explanatory notes to Harmonised System of Nomenclature (HSN) clarifies the above aspect as under: Contrary to the provisions related to the transport equipment falling in other Chapters of Section XVII, this Chapter excludes all separately presented parts (other than hulls) and accessories of vessels or floating structures, even if they are clearly identifiable as such. Such parts and accessories are classified in the appropriate headings elsewhere in the Nomenclature, for example: (1) The parts and accessories specified in Note 2 to Section XVII (2) Wooden oars and paddles (heading 44.21) (3) Ropes and Cables of Textile Materials (heading 56.07) (4) Sails (heading 6306) (5) Masts, hatchways, gangways, rails and bulkheads for ships or boats and parts of hulls, having the character of metal structures of heading 7308 (6) Cables of iron or steel (heading 7312) (7) Anchors of iron or steel (heading 7316) (8) Propellers and paddle wheels (heading 8487) (9) Rudders (headings 4421, 7325, 7326, etc) and other steering or rudder equipment for ships or boats (heading 84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff item 8905 20 00) or 8906 . . . . f. Notification No. 64/95-CE included the following exemption 21 All goods If, - (a) the said goods are supplied for use in construction of warships of the Indian Navy or Coast Guard; and (b) before clearance of the said goods, a certificate from an officer not below the rank of a Rear Admiral of the Indian Navy or Coast Guard or Director General of Coast Guard or any other officer of the Indian Navy or Coast Guard equivalent to the Joint Secretary to the Government of India, to the effect that the said goods are intended for the said use, is produced to the proper officer. g. Further, Notification No. 12/2012-Cus also had the following entry 459 Any Chapter Capital goods and spares thereof, raw materials, parts, material handling equipment and consumables, for repairs of ocean going vessels by a ship repair unit. h. Notification No.82/84-CE exempted all capital goods, components and raw materials falling under the Schedule to the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 144 - SUPREME COURT - held that a part or accessory need not necessarily mean an item which is essential for the effective use of a vehicle but also would include any item which adds to the comfort or enjoyment of the vehicle. Having given our anxious consideration, with respect, we are of the considered view that the test laid down by the Karnataka High Court that the accessories as a part must contribute for convenience or effectiveness in the use of the car as a whole is not a correct test. In our view the correct test would be whether the article or articles in question would be an adjunct or an accompaniment or an addition for the convenient use of another part of the vehicle or adds to the beauty, elegance or comfort for the use of the motor vehicle or a supplementary or secondary to the main or primary importance. Whether an article or part is an accessory cannot be decided with reference to its necessity to its effective use of the vehicle as a whole. General adaptability may be relevant but not by itself conclusive. . . ii. Pragati Silicones Private Limited v. CCE, Delhi [2001 (131) ELT 704 Tri, Delhi] = 2001 (4) TMI 125 - CEGAT, COURT NO. II, NEW DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) TMI 736 - CESTAT, BANGALORE . d. The applicant submitted that in view of the judicial pronouncements, which though have been rendered in the context of Central Excise law, the fact that they enumerated the scope of part of automobiles, which is broadly the subject matter in this application, it is submitted that the understanding of the applicant that the systems attract 5% GST only is appropriate. iv. The GST Notification is applicable so long as the goods are used in warships, vessels and submarines, whether for construction or repair or replacements: a. The applicant submitted that they are of the view that the rate of 5% GST in terms of Sl.No. 252 of Schedule I would apply whenever goods falling under any Chapter are supplied, either as individual parts / components or as system/ assemblies so long as they are meant for use in Warships (or other type of vessels falling under Heading 8901 etc.) b. The applicant also submitted that when the GST Notification is compared with the corresponding Customs / Central Excise Notifications mentioned earlier, it can be noticed that the GST Notification in general terms refers to parts of goods falling u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive of the applicant during the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts. 5.2 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act. 5.3 The Applicant seeks advance ruling in respect of the following question: Whether the various systems, sub-systems and onboard spares supplied by the applicant for use in the Warships, Vessels and Submarines meant for Indian Navy and Shipbuilders, attracts 5% GST? 5.4 The applicant states that the subject matter of this application relates to supplies against purchase orders received from various ship buildering industries, namely Mazagon Docks Ltd, Garden Reach Shipbuilders and Engineers, Hindustan Shipyard Limited, L T and directly to Indian Navy. In this regard the applicant has submitted a copy of a contract entered between the applicant and JS AM(MS), Ministry of Defence, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.8 Composite supply has been defined under sub-section (30) of section 2 of the CGST Act 2017 and is as under: (30) composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; 5.9 It is seen that the price is inclusive of the packing charges, freight charges and transit insurance charges and are includible in the price. The contract includes services like Installation and Commissioning, Training and rehosting test programmes. Hence the entire contract is a composite supply of supply, installation, commissioning, training and rehosting the test programmes with the principal supply being the supply of Fire Control Systems. It also includes the service to be provided during the warranty period. In the instant case the Applicant supplies the goods such as Fire Control Systems, Radar Systems etc., and also provides the services of the installation, commissioning, Training etc.. The equipments/ systems supplied by the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Tariff item , sub-heading heading and Chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). (iv) The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification. Accordingly we make a reference to the Section Notes and Chapter Notes of the relevant Chapters of the Customs Tariff and also the corresponding Explanatory Notes. 5.14 Section XVII of the Customs Tariff deals with the Vehicles , Aircraft, Vessels and associated Transport Equipment , covering the chapters 86 to 89. Further Chapter 89 covers Ships, boats and floating structures. Tariff Heading 89.06 covers Other Vessels, including warships and lifeboats other than rowing boats . The warships are specifically covered under Tariff Heading 8906 1000. Further Parts of goods of heading 8901, 8902, 8904, 8905, 8906 and 8907 falling under any chapter are subject to 5% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adings 8901, 8902, 8904, 8905, 8906, 8907 but not meant for goods of headings 8903, 8908. 5.18 Further HSN explanatory notes at Tariff Heading 89.06 specifies the articles / goods covered under the said heading. It specifies that the Tariff Heading 8906.10 covers Warships and heading 8906 covers all kinds of warships which include (a) Ships designed for warfare, fitted with various offensive weapons and defensive weapons and incorporating protective shields against projectiles (e.g. armour-plating or multiple watertight bulkheads), or with underwater devices (anti-magnetic mine-detectors). They are generally also fitted with detection and listening devices such as radar, sonar, infra-red detection apparatus and scrambling equipment for radio transmission. Ships of this category may be distinguished from merchant ships by their greater speed and manoeuvrability, by the size of the crew, by bigger fuel tanks and by special magazines, for transport and use of ammunition at sea. (b) Certain specially fitted ships which do not carry weapons or armour-plating but yet are recognizable as wholly or mainly for use in warfare, such as landing craft or certain fleet auxiliari ..... 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